Income declared us 132(4) is voluntary offer, the statement cannot be considered as detection by the Revenue. Penalty u/s 271(1)(c) deleted by ITAT
ABCAUS Case Law Citation:
ABCAUS 1151 (2017) (03) ITAT
Assessment Year(s) : 2006-07 and 2007-08
Date/Month of Pronouncement: March, 2017
Brief Facts of the Case:
The assessee was a partnership firm engaged in the business as developer, builder and contractor. Search and seizure operation was conducted u/s 132 of the Income Tax Act, 1961 (“the Act”) in a Group cases. The Revenue also carried out survey operation u/s 133A at the business premises of the assessee.
During the course of survey action, loose papers were found and impounded. Those documents revealed that the assessee had received cash on sale of flats. The loose papers also revealed that the partner of the assessee had also received cash in respect of sale of shops. When these discrepancies were confronted to the partner of the assessee firm during the course of search operations, the partner had agreed to offer a sum of Rs. 75,00,000/- u/s 132(4) of the Act.
Subsequently, the assessments of two assessment years under consideration were reopened by the Assessing Officer by issuing notice u/s 148 of the Act. In response thereto, the assessee filed return of income admitting additional income of Rs. 75 lakhs for both the AYs.
The Assessing Officer completed the assessment by accepting the additional income and after making disallowance made u/s 40A(3). Also, he initiated penalty proceedings in both the years u/s 271(1)(c) and levied penalty on the additional income of 75 lakhs computed @ 100% tax sought to be evaded.
The assessee could not succeed in appeals filed before the CIT(A) for both the years and hence the assessee had filed these appeals before the Tribunal.
Contentions of the Appellant assessee:
It was submitted that the assessee was following mercantile system of accounting and both the building projects were completed subsequently in AY 2008-09. Accordingly it was submitted that the discrepancy, if any, in not disclosing the receipts would have bearing only in AY 2008-09 and not in AY 2006-07 and 2007-08.
It was submitted that as per established proposition , the entire unaccounted receipt, if any, cannot be taxed, but only the income element therein should be taxed. However, the partner of the assessee, without appreciating these legal positions, had agreed to offer entire amount of Rs. 75.00 lakhs in order to buy peace and to avoid litigation in the statement taken u/s 132(4) of the Act during the course of search conducted in his hands.
It was submitted that the assessee was subjected to only survey operations u/s 133A of the Act and not subjected to search.
It was submitted that the Assessing Officer (AO) should have initiated proceedings u/s 153C of the Act, since the offer was made in the statement recorded u/s 132(4) of the Act, but the AO chose to reopen the assessment u/s 148 of the Act. Since the additional income was offered by the partner during the course of search operation, the assessee had offered additional income accordingly.
It was submitted that the income can be taxed only in the appropriate assessment year and the concession given by the assessee cannot operate as estoppel. Hence the additional income offered by the assessee could not be considered to be a case of concealment of income or furnishing of inaccurate particulars of income, when there was no legal obligation to offer the same during the two years under consideration.
It was also submitted that the disallowance made u/s 40A(3) was made by legal fiction and hence the same would not result in concealment of particulars of income or furnishing of inaccurate particulars of income.
It was submitted that there was no application of mind on the part of the AO when he initiated the penalty proceedings, i.e., the AO had not specified the charge, i.e., the limb mentioned in section 271(1)(c) of the Act under which the penalty proceedings were initiated. Accordingly he submitted that the penalty orders were liable to be quashed on this legal point also.
Contention of the Respondent Revenue:
It was submitted that the assessee had not accounted the amounts received by way of cash and the same was evidenced by the loose sheets found during the course of search. The assessee had come forward to admit the additional income only after the search/survey operations and hence the CIT(A) rightly confirmed the penalty levied in both the years
Observations made by the ITAT:
The Tribunal observed that there both the building projects had not been completed during the years under consideration instead they completed in subsequent year. Hence there was merit in the contentions that the incidence of taxation on account of unaccounted receipts, if any, shall arise only in AY 2008-09 and not during the years under consideration.
The Tribunal observed that It is well settled proposition that the penalty proceedings are independent of assessment proceedings and further, the additions made in the assessment proceedings would not automatically give rise to penalty u/s 271(1)(c) of the Act, i.e., during the course of penalty proceedings, the assessing officer is required to examine the applicability of section 271(1)(c) of the Act afresh and the findings given in the assessment order can only be taken as a guidance.
It was noted that as contended by the assessee, the income additionally offered did not accrue during the two years under consideration. Further the offer was made by the partner of the assessee firm during the course of search proceedings conducted in his hands, while the assessee was subjected to only survey operations. It was noticed that the AO has accepted the additional income offered by the assessee only on the basis of offer made in the statement taken from the partner of the firm u/s 132(4) of the Act, i.e., the AO did not examine the aspect whether the alleged unaccounted receipts were taxable in the two years under consideration.
Further, the ITAT noted that the AO did not also examine the question as to whether the entire amount could be taken as the income of the assessee. It was noticed that the assessee also declared additional income on the strength of the offer made u/s 132(4) of the Act.
Under these set of facts, the Tribunal opined that the additional income offered by the assessee could be considered as a voluntary offer only and it could not be considered as an offer made after detection by the Revenue. In any case, the explanation of the assessee was not found to be false in terms of Explanation 1 to section 271(1)(c) of the Act.
Held that there was no case to levy penalty u/s 271(1)(c) in both the years under consideration. Since the penalty was deleted on merits, no necessity was felt to address the legal issue.